Retirement Administration Defined Contribution Plan - July 2016

We undertook this audit of the city's administration of its defined contribution retirement plan to compare plan design and administration to recommended practices. Risks include management oversight, contract compliance, employee education, and fees and performance compared to benchmarks. As of January 2016, 51% of employees were enrolled in the defined contribution plan, with about one third of these employees enrolled solely in the defined contribution plan and two thirds in a hybrid plan. The city's defined contribution plan offers participants the opportunity to save for retirement, but is missing several elements of best practices.

We found:

For employees solely in the defined contribution plan, the combined contribution rate is 33% below the level needed to meet recommended income replacement

Among all plan participants, 90% are invested in only one fund

Loans from the plan, as currently allowed, could reduce retirement savings

The management committee established by the 2011 pension reform, intended to govern the plan for its participants, has never met

The city has not tracked the indirect compensation to the third-party plan manager from fund-level expenses borne by plan assets, which has totaled nearly $1 million over the first 18 months of the contract

This indirect compensation has exceeded the annual target established in the contract by 2.5 basis points and has exceeded the estimated monthly fee per participant, which the city opted not to pay, by nearly $300,000

The median time between hire date and date of enrollment in the plan was 40 days during fiscal year 2015

Delays or errors in enrollment reduce employee benefits because the city does not reimburse its employees for lost profits or unmatched contributions when correcting errors